Britain unveiled the bill in November after police and intelligence agencies warned they had fallen behind those they were trying to track, as advances in technology and the growth of services like Skype and Facebook increasingly put criminals beyond their reach.
Critics say the Draft Investigatory Powers Bill represents the West's most far-reaching surveillance law, one that could change the international landscape in this area, while large tech companies have warned it would damage their own security systems.
The proposals would force communications firms to collect and store vast reams of data about almost every click of British online activity. The bill would also place explicit obligations on service providers to help intercept data and hack suspects' devices.
"Overall, the privacy protections are inconsistent and in our view need strengthening," the report by parliament's Intelligence and Security Committee said, describing the bill as a "significant missed opportunity".
"The draft bill appears to have suffered from a lack of sufficient time and preparation," it added, saying the bill adopted a "rather piecemeal approach" to privacy protection which it said should have formed the backbone to the measure.
Debate about how to protect privacy while helping agencies operate in the digital age has raged since former US intelligence contractor Edward Snowden leaked details of mass surveillance by British and US spies in 2013.
That means the British bill is being watched closely by governments and tech companies around the world. It will come before parliament for debate this year as it is needed to replace legislation which is due to expire.
A parliamentary committee, set up specifically to scrutinise all aspects of the proposed bill such as its impact on encryption, is due to give its conclusions on Thursday. The reports will then feed into the wider parliamentary debate.
© Thomson Reuters 2016
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